What to know this week

An already tense US stock market will be further challenged next week as the government releases a key inflation report and megabanks kick off what is likely to be a murky earnings season.

The long-awaited Consumer Price Index (CPI) gets top billing in the coming days, with third-quarter financials from the nation’s biggest banks: JPMorgan ( JPM ), Citi ( C ) and Wells Fargo ( WFC ) following suit. line of importance

A new CPI reading on Thursday is expected to dictate how much more aggressive the Federal Reserve will be with its interest rate hike plans, which are already the most combative in decades. The ensuing economic launch will take on even greater significance after the Labor Department’s September jobs report on Friday suggested officials have more room for raises.

JPMorgan Chase and the company's chairman and CEO, Jamie Dimon, testify before a Senate hearing on Banking, Housing and Urban Affairs.

JPMorgan Chairman and CEO Jamie Dimon speaks on Capitol Hill in Washington, U.S., September 22, 2022. (REUTERS/Evelyn Hockstein)

The US economy added 263,000 jobs last month, a moderation from the previous print but still a robust hiring figure as the unemployment rate fell to 3.5%. The weaker-than-expected drop in payroll earnings dashed investors’ hopes that FOMC members would move away from monetary tightening earlier than expected.

That reality sent stocks higher on Friday. The S&P 500 (^GSPC) fell 2.8%, the Dow Jones Industrial Average (^DJI) dropped 630 points and the Nasdaq Composite (^IXIC) led the way with a 3.8% decline. The major averages managed to finish higher for the week after three straight weeks down after paring some gains from a transitory rally in the first two trading days of October.

“The persistent strength in hiring and a drop in the unemployment rate, in our view, means the Fed is unlikely to pivot in the direction of a slower pace of rate hikes until it has more evidence clear that employment growth is slowing down”, Bank analysts. of America said in a note on Friday, adding that the institution expects a fourth rate hike of 75 basis points in November.

And this week’s inflation reading could corroborate that move next month. According to Bloomberg forecasts, September’s core consumer price index is expected to show a slight moderation in a year-on-year figure to 8.1% from 8.3% in August, but an increase to 0.2% from 0.1% for the month.

All eyes will be on the “core” component of the report, which strips out the volatile food and energy categories. Economists polled by the Bloomberg Project showed core CPI rose to 6.5% from 6.3% on the year, but moderated to 0.4% on the month from 0.6% in august

The marginal fluctuations in the data have not been reassuring enough for members of the Federal Reserve to move away from early intervention. At an event in New York last week, Federal Reserve Bank of San Francisco President Mary Daly called inflation a “corrosive disease” and a “toxin that erodes people’s real purchasing power.”

At the entrance to the William McChesney Martin Jr. building.  A sign from the Federal Reserve Board of Governors is seen before a news conference by Federal Reserve Board Chairman Jerome Powell on interest rate policy in Washington, US, September 21 of 2022. REUTERS / Kevin Lamarque

At the entrance to the William McChesney Martin Jr. building. A sign from the Federal Reserve Board of Governors is seen before a news conference by Federal Reserve Board Chairman Jerome Powell on interest rate policy in Washington, US, September 21 of 2022. REUTERS / Kevin Lamarque

Elsewhere in the economic publications, investors will also get an indicator of how fast wholesale prices are rising with the producer price index, or PPI, which measures the change in prices paid to producers in the North Americans of goods and services; a read on how consumer spending is faring amid persistent inflation and slowing economic conditions with the government’s retail sales report; and a closely watched University of Michigan consumer sentiment check.

Meanwhile, bank earnings will set the stage for a third-quarter earnings season expected to be boosted by economic warnings from corporate executives about the state of their businesses, earnings per share estimates cut on Wall Street and generally softer results as price and rate pressure. has weighed on businesses in the last three months.

Results from JPMorgan, Citigroup, Wells Fargo, and Morgan Stanley are available next week, followed by Goldman Sachs ( GS ) and Bank of America ( BAC ) the following week.

The chief executives of the nation's largest banks are sworn in at the start of a Senate hearing on Banking, Housing and Urban Affairs.

CEOs of the nation’s largest banks are sworn in at the start of a Senate Banking, Housing and Urban Affairs hearing on “Annual Oversight of the Nation’s Largest Banks” on Capitol Hill in Washington, US, on 22 of September 2022. REUTERS / Evelyn Hockstein

Banks typically benefit from tightening central bank policy, with higher interest rates increasing their net interest income (the bank’s income from its lending activities and the interest it pays to depositors ) and net interest margins (calculated by dividing net interest income by average income earned from interest-bearing assets.) However, difficult market conditions that have dealt a blow to trading activity and general macroeconomic uncertainty are poised to offset the increase in the interest margin.

Bank of America analysts forecast profit growth among banks and brokers to slow to 2.0% year-over-year in the third quarter, from 5.9% in the second and 7.7% in the third, according to consensus estimates from the bottom to the top, according to a recent note. .

However, this decline pales in comparison to expectations for sectors outside of financials, with the exception of the energy sector, according to BofA. Profit growth in these areas “is expected to fall well into negative territory,” the bank warned in a note, with growth expected to be -4.2% year-on-year in the third quarter, down from -1.3% of the second quarter

economic calendar

Monday: There are no featured reports scheduled for release.

Tuesday: NFIB Small Business OptimismSeptember (91.8 expected, 91.8 during the previous month); Monthly budget statementSeptember ($-219.6 billion)

Wednesday: MBA mortgage applicationsweek ended October 7 (-14.2% over the previous week); PPI excluding food and energyyear-on-year, September (7.3% expected, 7.3% during the previous month); PPI final demandmonth-on-month, September (0.2% expected, -0.1% during the previous month); PPI excluding food and energymonth-on-month, September (0.3% expected, 0.4% during the previous month); PPI excluding food, energy and trademonth-on-month, September (0.2% expected, 0.2% during the previous month); PPI final demandyear-on-year, September (8.4% expected, 8.7% during the previous month); PPI excluding food, energy and tradeyear-on-year, September (5.6% during the previous month); Minutes of the FOMC meetingSeptember 21

Thursday: Consumer price indexmonth-on-month, September (0.2% expected, 0.1% during the previous month); CPI excluding food and energymonth-on-month, September (0.4% expected, 0.6% during the previous month); Consumer price indexyear-on-year, September (8.1% expected, 8.3% during the previous month); CPI excluding food and energyyear-on-year, September (6.5% expected, 6.3% during the previous month); NSA CPI indexSeptember (296,417 expected, 296,171 during the previous month); CPI Core Index SASeptember (296,950 during the previous month); Initial unemployment claimsweek ended Oct. 8 (estimated 225,000, 219,000 last week); Ongoing claimsweek ended October 1 (1,361 during previous week); Average weekly real earningsyear-on-year, September (-3.4% over the previous month)

Friday: Advance retail salesmonth-on-month, September (0.2% expected, 0.3% during the previous month); Retail sales except automobilesmonth on month, September (-0.1% expected, -0.3% during the previous month); Retail, except automobiles and gasmonth on month, September (0.3% over the previous month); Retail Sales Control GroupSeptember (0.0% during the previous month); Import price indexmonth on month, September (-1.1% expected, -1.0% during the previous month); Import price index excluding oilmonth on month, September (-0.2% over the previous month); Import price indexyear-on-year, September (7.8% during the previous month); Export price indexmonth on month, September (-1.2% expected, -1.6% during the previous month); Export price indexyear-on-year, September (10.8% during the previous month); Bloomberg October US Economic Survey; Commercial inventoriesAugust (0.9% expected, 0.6% during previous reading); University of Michigan Consumer Sentimentpreliminary October (58.8 expected, 58.6 during the previous month)

Earnings calendar

Monday: There are no featured reports scheduled for release.

Tuesday: AZZ (AZZ), Pinnacle Financial Partners (PNFP)

Wednesday: PepsiCo (PEP), Duck Creek Technologies (DCT)

Thursday: BlackRock (BLK), Delta Air Lines (DAL), progressive (PGR), Walgreens Boots Alliance (AMB), Commercial metals (CMC), Taiwan Semiconductor (TSM)

Friday: JPMorgan (JPM), Citigroup (C), Morgan Stanley (MS), PNC (PNC), US Bancorp (USB), UnitedHealth (UNH), Wells Fargo (WFC)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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